Morgan & Co’s 2021 economic outlook for Zimbabwe

Zimbabwe's economy has been grappling with a recession even before the onset of the COVID-19 pandemic, and the challenges persisted through 2020. The economic landscape has been marred by output losses in critical sectors, exacerbating poverty levels and soaring unemployment rates. As the country looks ahead to 2021, analysts are weighing in on the potential shape of the economic recovery and the key factors that will influence its trajectory. Batanai Matsika, the Head of Research at Morgan & Co, recently shared insights on CNBC Africa regarding the economic outlook for Zimbabwe in 2021. Matsika highlighted the profound impact of the COVID-19 pandemic on the market economy, emphasizing the loss of productivity in key sectors and the alarming rise in poverty levels and unemployment rates. These factors have contributed to a significant strain on disposable incomes, leading to a decline in overall demand in the economy. One of the critical aspects that Matsika touched upon is the expectation of an economic rebound in 2021. The debate revolves around whether this recovery will take a 'V-shaped' or 'U-shaped' trajectory. Morgan & Co projects a growth rate of approximately 3.1% for the year, in contrast to the Finance Minister's more optimistic estimate of 7.4%. Inflation remains a persistent concern, with projections indicating a triple-digit figure of around 350% for 2021. In terms of the foreign exchange market, Matsika anticipates a significant shift as economic activities start to revive post-COVID-19. With rising demand for foreign currency, parallel market rates are expected to climb from the current level of 120 to 150 by the end of the first quarter and potentially reach 200 in the latter half of the year. These developments are likely to impact inflation rates and overall economic stability. Looking at specific sectors that could drive the economic recovery, Morgan & Co has identified key opportunities in agriculture, mining, and financial services. In the agricultural sector, favorable rainfall patterns and increased food demand in sub-Saharan Africa are expected to boost agricultural activities. Companies like Seed Co International and Ariston Holdings are positioned to benefit from these trends. The mining sector presents exciting prospects, particularly in rare earth minerals, lithium, and metals such as nickel and cobalt. BNC and Padenga Holdings are among the companies that could capitalize on these opportunities. Additionally, the financial services industry is anticipated to witness a surge in merger and acquisition activity, with companies like CBZ Holdings and NMB emerging as potential beneficiaries. While Finance Minister Mthuli Ncube has expressed optimism regarding Zimbabwe's economic trajectory, Matsika adopts a more cautious stance. He acknowledges progress in stabilizing the exchange rate and advancements in privatization efforts but also underscores persistent challenges that need to be addressed for sustainable economic growth. Despite some positive developments, there are lingering issues that require concerted efforts to overcome. As Zimbabwe navigates the complexities of its economic landscape in 2021, stakeholders and policymakers will need to remain vigilant and proactive in addressing underlying structural issues to foster a more stable and resilient economy.